Rules Set For Avoiding Discrimination On Loans

March 8, 1994|American Banker

WASHINGTON — After months of heated negotiations, regulators are set to spell out precisely what lending behavior they consider discriminatory, providing guidance to banks and thrifts on how to avoid government investigations.

Regulators are expected to release today a joint policy statement on lending discrimination. The document will address issues such as how lending data will be evaluated, what lending patterns will be referred to the Justice Department for investigation, and how regulators will respond to industry self-testing.

It is also expected to address how regulators will scrutinize various bank policies - such as underwriting standards - in investigating possible discrimination.

The 21-page statement, while not carrying the force of law, will nonetheless be recognized by 10 federal agencies as the definition of discrimination in their efforts to enforce fair-lending laws. It will provide the most explicit notice to date of the practices bankers must employ to avert government investigations of illegal lending discrimination.

Negotiations on the breadth of the plan have continued up to the last minute, and have worked their way up to the highest levels of the agencies.

While there is widespread agreement that most lenders do not intentionally discriminate, lending data continues to show that minorities and whites are treated differently, even when credit factors are accounted for.

Lenders are still grappling with the policies and standards they employ that may unintentionally lead to a "disparate impact" on minorities.

More and more, lenders are being forced to scrutinize what lending policies and programs may inadvertently lead to greater barriers for minorities seeking loans than whites.